international law essay

Us Mexican Anti Dumping Orders

Introduction

On 16 June 2003; the United States of America challenged Mexican anti dumping orders in relation to long grain white rice and American beef. Mexico had imposed these measures on American long grain white rice on 5 June 2002 and on American beef on 28 April 2000. The United States challenged these measures through the filing of a communication on the aforementioned date to the Permanent Mission of Mexico and to the Chairman of the Dispute Settlement Body. This was the first step in the process of challenging anti dumping measures under the trade law regime of the WTO, known as a ‘Request for Consultation'.

The duties imposed by Mexico were essentially ‘defensive anti dumping duties' that aimed to protect indigenous Mexican rice against the imported American long grain variety. At the time, Mexican anti dumping law was regulated and administered by the Secretariat of Commerce and Industrial Development. The Mexican Rice Council is an umbrella organisation for a large number of rice producers and suppliers within the territory of Mexico. On 2 June 2000, the Council filed a petition with the Secretariat alleging dumping of long grain white rice into Mexico by the United States of America.

Subsequently, on 5 June 2002 Mexico imposed certain anti dumping duties on American long grain white rice. In December of the same year, Mexico amended its anti dumping and countervailing duty laws to facilitate imposition of such duties.

Applying binding tariffs equally to all trading partners is integral to smooth flow of trade in goods. Although the WTO agreements are aimed at upholding this principle, the agreements themselves provide for three main exceptions to the rule. One of these exceptions covers actions taken by countries against dumping. Dumping is said to occur when a country exports a product at a price lower than the price normally charged for that product in its home market. Countries may impose dumping duties for a variety of reasons and these may include and may not be limited to only economic as well as political and social reasons.

Actions that are available to countries against dumping are covered under Article VI of the GATT Agreement read in conjunction with the provisions of the ADA (Anti Dumping Agreement). They broadly provide that countries may impose anti dumping duties on specific products upon proving that dumping has actually taken place, calculating the extent of dumping, as well as proving the dumping is causing injury to domestic industry or is threatening to do so.

In the Mexico Rice case, the United States challenged Mexican imposition of anti dumping duties of American beef as well as American long grain white rice. This paper will confine itself to an examination and analysis of the imposition of anti dumping duties by Mexico and the subsequent cases filed in the WTO by the United States with respect to long grain white rice. This paper has aimed at finding and analysing the background to the case including the political motives that guided both the Mexican and the American actions. The Panel Report and the Appellate Body ruling are both extremely extensive and the project will have to selectively filter the most important points from an anti dumping perspective while still remaining comprehensive enough to give a broad, holistic understanding of the Mexico Rice case.

Background To The Case And The Political Issues Involved

The Mexican Rice Council is an umbrella organisation that protects the interests of all rice growers and suppliers within the territory of Mexico. It may be thought of as a counterpart to the USA Rice Federation which is the national advocate for all segments of the American rice industry, conducting activities to influence government programs, developing and initiating programs to increase worldwide demand, and providing other services to increase industry profitability.

Although the scale of the operations of the Mexican Rice Council cannot be compared to that of the USA Rice Federation, the former holds a crucial bargaining chip: the fact that Mexico is the largest export market for American rice. The USA Rice Federation consequently conducts many activities in Mexico that influence government decisions in favour of the American rice industry. In the year 2002, America exported approximately $ 103 million worth of rice to Mexico.

It would be safe to say that the American rice industry has substantial interests in Mexico, as that country is undoubtedly its #1 export market. The USA Rice Federation has clearly stated that its primary goal with relation to Mexico is “increasing the Mexican export market without any further trade barriers.” The Mexican Rice Council essentially alleged that America was ‘dumping' long grain white rice into Mexico i.e. selling the rice at a substantially lower price than that at which it was being sold in the United States, thereby substantially damaging Mexico's indigenous rice industry. The specifics of this complaint will be looked into in the next chapter.

The Anti Dumping Duty And The Rapid American Response

On 2 June 2000, the Mexican Rice Council filed a petition with the International Commercial Practices Unit of the Secretariat of Commerce and Industrial Development. It alleged that American long grain white rice was being dumped into Mexico. It is pertinent at this point to clarify what exactly is meant when a country claims a product is being ‘dumped'. Article VI GATT, 1994 is more popularly known as the Anti Dumping Agreement (hereinafter referred to as ADA). The ADA lays down the principle that an anti dumping measure shall only be applied by a WTO member nation if it is in consonance with the principles of the agreement itself.

Article 2.1 of the ADA states:

“a product is to be considered as being dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.”

In a nutshell, it states that if there is a comparable difference between the price at which a product is being sold within the exporting country for domestic consumption and the price at which the product is sold in the importing country, the product may then be considered as being dumped. Naturally the price at which the product is sold in the importing country must be lower than the price at which it is sold domestically in the exporting country itself.

Mexico concluded that damage was being done as a result of low priced shipments of long grain white rice from the United States and consequently imposed an import duty of 10.18% on the product. This action provoked wide spread outrage on the part of the American rice industry. Mexico's move was strongly condemned by the U.S. Rice Producers Association as well as the U.S.A. Rice Federation. This was quite understandable since Mexico was and still is the number one export market for American rice. The American rice industry exerted considerable pressure on the US government, which was quick to denounce the action. At this point, it is necessary to elaborate on the steps involved in dispute settlement under the WTO regime.

The WTO regime is at its essence, a multi lateral trading regime. Consequently all member nations have undertaken a binding commitment to resolve disputes multi laterally and not unilaterally. The first step in dispute resolution under the WTO is consultations and mediations. Consultation takes place only between the countries involved in the dispute and it is a method by which the countries can sit down and try to iron out their differences. In the Mexico-Rice case, the United States followed the proper procedure and filed a request for consultation with the Permanent Commission of Mexico and the Chairman of the Dispute Settlement Body. The period of consultation generally lasts for up to 60 days.

In case countries cannot settle their differences in the consultation period itself, a Panel is constituted to adjudicate upon the matter. The mandate of the Panel is to assist the Dispute Settlement Body is resolving the dispute. The country against whom the complaint lies can block the creation of the Panel once, but when the Dispute Settlement Body meets for the second time, the appointment can no longer be blocked. The Panel's report should be given to the parties within a period of 6 months. In case either of the parties to a dispute decides to appeal the Report of the Panel, the matter is heard before the Appellate Body set up by the Dispute Settlement Body. The Dispute Settlement Body can either accept or reject the findings of the Appellate Body. Again, the AB report can only be rejected by consensus.

In the Mexico Rice case, the United States laid out the provisions that it believed were contravened by Mexico while imposing the anti dumping duty on American long grain white rice. Broadly, America believed that the Mexican action was violative of certain principles of the GATT, AD and SCM agreements. They believed that certain provisions of Mexico's Foreign Trade Act, Federal Code of Civil Procedure as well as the Foreign Trade Act were inconsistent with their obligations under certain principles of the AD and SCM agreements.

America claimed that Articles 3, 5.8, 6, 9, 11, 12 of the ADA were violated by the anti dumping measures imposed by Mexico. They also stated that Articles 53, 64, 68, 89D and 93V of Mexico's Foreign Trade Act were inconsistent with their obligations under the AD and SCM agreements. Finally, the United States claimed that Article 366 of Mexico's Federal Code of Civil Procedure read in conjunction with Article 68 of the Foreign Trade Act were inconsistent with Articles 9 and 11 of the AD agreement and Articles 19 and 21 of the SCM agreement.

This is a summation of the charges levelled by the United States against Mexico in response to the latter's imposition of a 10.18% import duty on American long grain white rice. The countries were not able to amicably settle their dispute during the consultation period, so a Panel was appointed under the Dispute Settlement Body of the WTO.

The Panel Report

On 19 September 2003, the United States requested the establishment of a Panel pursuant to Article 6 of the DSU, Article 17.4 of the ADA and Article 30 of the SCM agreement. The Dispute Settlement Body (DSB for short) met on 7 November 2003 and it established a Panel as per Article 6 of the DSU. In its request for the establishment of a Panel, the United States did not include claims with respect to beef.

At the very outset of its report, the Panel mentions that the general principles of burden of proof under the dispute settlement regime of the WTO require that the party claiming a violation of a WTO provision by another member must assert and prove its claim. Consequently, the Panel explicitly states that the United States must prove that Mexico violated its WTO obligations. The Panel has analysed America's claims with respect to the anti-dumping measures imposed on rice by breaking them up individually. Some of the most important claims on which the Panel based its findings are given below.

Mexico's use of a period of investigation that ended more that 15 months prior to the initiation of the anti-dumping investigation and nearly three years prior to the final determination is inconsistent with their obligations under the gatt 1994 and ad agreement

The period of investigation for which data was examined by Mexico was from March - August 1999 for determination of dumping and from March - August 1997, 1998 and 1999 for injury analysis. Mexican investigations began on 11 December 2000 and the anti-dumping measures themselves were imposed on 5 June 2002. America's primary contention on this issue was that Mexico used a period of investigation that ended 15 months prior to the start of the investigation itself, which was inconsistent with the ADA. Furthermore, the use of such an investigation period did not provide Mexico with any positive evidence and did not allow them to make an objective determination of injury.

Article 3.1 of the ADA lays down the general requirement for determination of injury. It states that an injury can be determined only after taking into account positive evidence and conducting an objective examination. In this regard the Panel stated that the period of investigation is very important since it determines the data that will form the basis for the assessment of dumping and injury to the domestic industry. The Panel acknowledged that though no specific time period for investigation was provided for in the ADA there must be a “real time link” between the period of Anti dumping investigations and the data on which the measures are based.

The Panel was also of the view that although historical data could not be discounted, the general rule was that more recent data was more relevant to anti dumping investigations. They interpreted Article 14.2 of the ADA to mean that the requesting country must show that dumping is presently causing injury to the domestic industry of that country. The Panel supported America's claim that Mexico acted in violation of its commitments under the GATT, AD and SCM agreements.

Mexico failed to conduct an objective analysis of the relevant economic factors

The second claim that the Panel dealt with was Mexico's limitation of its injury analysis to only 6 months of 1997, 1998 and 1999. The United States claimed that such a move was inconsistent with some of Mexico's obligations under the ADA. They believed that Mexico did not base its injury analysis on positive evidence and that they did not conduct an objective examination.

The Panel believed that since it had already determined that Mexico had not based its determination of injury on any positive evidence or objective evaluation of the injury itself, there was no need for going into whether Mexico had objectively analysed all the economic factors involved.

Mexico failed to exclude firms with anti dumping margins of zero per cent from the anti dumping measure

The United States alleged that such a measure was inconsistent with Mexico's obligations under the AD agreement. Article 5.8 of the ADA requires termination of the anti dumping investigation in case the margin of dumping is below the de minimis level. Mexico included Farmer's Rice and Riceland within the anti dumping measures, even though their margin of dumping fell within the de minimis level.

The Panel interpreted the term “margin of dumping” to mean the individual margin of dumping of an exporter and not a country wide margin of dumping. Consequently, Mexico had to look at the dumping margins of each individual American exporter of long grain white rice and it could not club all the exporters together for determining the net margin of dumping. The Panel then examined the entire ADA in order to determine if there was any provision that contradicted this interpretation and was able to find none. The Panel thus came to the conclusion that by not terminating the investigation against the two American exporters whose dumping margins were within the de minimis levels, Mexico acted in a manner that was contrary to Article 5.8 of the ADA.

Article 53 of mexico's foreign trade act is inconsistent with article 6.1.1 of the ad agreement and article 12.1.1 of the scm agreement

Article 53 of the Foreign Trade Act reads:

“The interested parties shall submit their arguments, information and evidence in conformity with the applicable legislation, within a period of 28 days from the day following the publication of the initiating resolution.”

Article 6.1.1 of the ADA requires all parties to be placed on equal footing by affording all of them a period of 30 days for responding to questionnaires connected to the dumping investigations. However under Article 53 of the Foreign Trade Act, Mexico would not count 28 days for replying to the questionnaires from the date of receipt of the questionnaires itself, but from the date of initiation of the proceedings. The United States complained that such a move violated the equality principle under Article 6.1.1 of the AD agreement and Article 12.1.1 of the SCM agreement.

The Panel believed that as per the above provisions of the AD and SCM agreements, exporters were obliged to receive at least 30 days for reply. The Panel further added that as a general rule, this time period was always calculated form the date of receipt of the questionnaire. They ruled that Mexico's actions in this regard were inconsistent with the provisions mentioned above of the AD and SCM agreements.

Article 68 of Mexico's foreign trade act “as such” is inconsistent with certain provisions of the ada and scm agreement

The United States made two claims with regard to the aforementioned Article 68. Mexico subjected exporters whose margin of dumping and/or subsidisation was within or below the de minimis levels. This was claimed to be violative of Article 5.8 of the ADA and Article 11.9 of the SCM agreement. The United States also alleged that Mexico required exporters who requested a review to show their volume of sales during the review period, something that was inconsistent with Articles 9.3 and 11.2 of the ADA and Article 21.2 of the SCM agreement.

Article 68 of the act reads: “Final countervailing duties shall be reviewed annually at the request of a party or ex officio by the Ministry at any time, as shall imports from producers for whom no positive margin of price discrimination or subsidization was determined in the investigation...”

This article of Mexico's Foreign Trade Act essentially required the review of exporters even though during the original period of investigation, it had been determined that they had not engaged in any dumping practices and had also not received any subsidies. As mentioned earlier, the Panel believed that Article 5.8 of the ADA must be interpreted so as to require a termination of the investigation when exporters have dumped their products within the de minimis levels. They stated that these exporters must also be excluded from any anti dumping measures imposed by the complaining party. The Panel consequently agreed with the United States that Article 68 was inconsistent with Article 5.8 of the ADA and Article 11.9 of the SCM agreement. The Panel's conclusions of Mexico's violations may be briefly set forth at this point:

Mexico acted inconsistently with its obligations under the ADA because it based its injury determination upon on an investigation period that ended more than 15 months prior to the initiation of the investigation itself.

Mexico violated its agreements under the ADA by limiting its injury analysis to only 6 months of 1997, 1998 and 1999.

Mexico acted inconsistently with the ADA because it did not conduct an objective examination based on positive evidence of the price effects and volume of dumped imports

Mexico violated the ADA because it did not suspend and terminate the anti dumping investigations against two American exporters whose dumping margins was below the de minimis level.

The report of the panel was consequently a victory for the United States. Admittedly, Mexico had violated provisions of the ADA and the SCM agreement in imposing anti dumping duties on American long grain white rice. Mexico however did not take the report lying down and took the matter to the next stage in the dispute settlement process under the WTO, before the Appellate Body (AB).

The Appellate Body Report

Mexico issued a notification dated 20 July 2005 in accordance with Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Rule 20 of the Working Procedures for Appellate Review. Mexico decided to appeal certain aspects of the final Panel Report. The summarised findings of the AB may be detailed below:

The AB upheld the Panel's finding that Mexico violated the ADA because it based its injury determination on a period of investigation that ended more than 15 months before the start of the investigation itself. The AB ruled that Mexico had consequently failed to make an objective evaluation of the injury suffered based on positive evidence.

The AB also upheld the Panel's finding that Mexico had only used a part of the data from the investigation period for its analysis of injury caused to the domestic industry. The AB also agreed with the Panel report that Mexico's analysis of the volume and price effects of the dumped imports was inconsistent with the ADA.

The Panel had ruled that under the notification requirements under Articles 6.1 and 12.1 of the ADA, Mexico had to notify all the interested parties about whom they not only had actual knowledge but also about whom they could have obtained knowledge. The Panel supported America's contention that Mexico violated the ADA by not notifying all the interested parties. The AB report however reversed the finding of the Panel in this regard. The AB found that Mexico was under an obligation to notify only the interested parties about whom it had actual knowledge.

The AB report also concurred with the Panel's findings that Mexico violated the ADA since it did not terminate investigations against two American exporters whose dumping margins were within the de minimis levels.

Mexico's decision to impose anti dumping measures on American long grain white rice was seen by many industry insiders as a highly political move. Long grain white rice exports account for only 1.5% of total Mexican rice consumption. The reasons for Mexico's decision to impose anti dumping duties on a rice export that accounts for such a miniscule portion of its consumption thus becomes murky. The American rice industry was especially grieved because they felt that this type of rice had the potential to grow significantly.

The American rice industry was further angered due to the fact that the anti dumping measures came just two years after the NAFTA provided for duties on all American rice imported by Mexico to be reduced to zero per cent. Consequently the findings of the Panel and their subsequent conformation by the AB were of crucial importance to the United States.

Mexico on its part complied with the findings of the Panel and the AB and eventually removed the duties amounting to 10.18% on American long grain white rice. America's largest rice export market was secure.

Conclusion

It has been established that Mexico clearly violated its commitments under the WTO by imposing duties on American long grain white rice. The surprising part has, however, been the bonhomie and excellent trade facilitation that have taken place between the two nations even after the duties were imposed and the decision of the DSB of the WTO. This perhaps reflects the fact that nothing can stand in the way of trade and economic progress. Mexico and the United States are simply too important for each other, in terms of the rice industry, for them to be at loggerheads with each other for long. Mexico is the largest export market for American rice, and the Mexican Rice Council closely collaborates with American rice industry groups like the USA Rice Federation and the Rice Council in importing cost efficient techniques and methods of production.

The American rice industry has clearly said that one of its stated goals is to improve worldwide demand for rice. They have successfully done so in Mexico in large part through the aid and cooperation of the Mexican rice industry. The relationship between the two can be described as a symbiotic one, although with America being the global superpower that it is, the American rice industry inevitably dominates over its Mexican counterpart.

Office of the United States Trade Representative, ‘U.S. Files WTO Case Against Mexico for Antidumping Restrictions on Beef and Rice Exports', http://www.ustr.gov/Document_Library/Press_Releases/2003/June/US_Files_WTO_Case_Against_Mexico_for_Antidumping_Restrictions_on_Beef_Rice_Exports.html last visited on 24th March, 2010.